Secret submissions fuel Maori mobile muddle

Friday 30th November 2001

Having flogged Maori a useless piece of third-generation radio spectrum real estate the government has rewritten telecommunications policy, allowing a foreign carrier the right to dip its hands into Vodafone New Zealand shareholders' pockets.

In doing so it has ignored international orthodoxy and the advice of its officials.

It has denied Vodafone natural justice by hearing secret, slanderous submissions.

And now it proposes to ram through Parliament a bill that has bypassed democratic safeguards and normal parliamentary procedure and makes no economic sense.

Its handling of the 3G auctions, Maori aspirations in telecommunications and the telecomms regulatory environment is shaping up as one of the biggest fiascos of this administration.

The story begins with last year's telecommunications inquiry, which dropped its report on to the government's desk in the middle of the 2G and 3G spectrum auctions.

The inquiry reckoned both Vodafone and Telecom's mobile networks should be "specified" - that is, they should be obliged by law to allow other players to use them but without being bound by the statutorily prescribed pricing principles that "designation" entails.

As the bidders couldn't be expected to be able to price their bids without knowing under what regulatory environment they'd be providing services, the auctions were suspended while the government took advice.

That advice, from officials at the Ministry of Economic Development, was that there would be no net benefit to consumers if roaming was specified. Communications Minister Paul Swain duly announced last December that, initially at least, mobile wouldn't be regulated.

The officials' advice was based partly on other countries' decisions. Although some OECD countries are looking at regulating access to 3G networks when they arrive, only three - Italy, Denmark, and South Africa - have specified 2G networks.

The auctions got under way again in January, with all the parties working on the assumption they knew what they were dealing with. More fool them.

Once the auctions were wrapped up the industry settled down to some serious lobbying over the content of the government's telecommunications bill. This was introduced on May 2 and went off to the commerce select committee for scrutiny.

The big shock for Vodafone came on September 18. The bill had come back from the committee as it had gone in, with no mobile regulation recommended. But in the meantime the government and its members on the committee had changed their minds. They now wanted specified national roaming and cell site co-location.

Over the objections of opposition committee members the government proposes simply to railroad its new direction through Parliament. Provided the bill can get a majority vote in Parliament - a foregone conclusion - it will become law before Christmas.

What Vodafone didn't know, until it was too late to respond, was what had been going on behind the scenes between the government, Maori interests and their commercial partners.

When the government put the latest slices of telecommunications spectrum up for auction, it reserved 25% of the 3G spectrum on offer for the Te Huarahi Tika Trust, charged with delivering benefits to Maori through participation in the telecommunications sector.

The trust's commercial arm, Hautaki Trust, teamed up with Zimbabwe-based Econet Wireless International, an outfit that has rolled out wireless networks around Africa and is now setting its sights further afield. Hautaki has taken a 30% Econet stake.

Both Hautaki and Econet's local arm, Northelia Holdings, made submissions which the select committee agreed to hear in secret "because of commercial sensitivity."

They used the opportunity, it subsequently came to light, to slag Vodafone mercilessly.

The submissions they made suggested, among other things, that Vodafone's GSM network was a monopoly - a view at odds with the Commerce Commission's consistent rulings on market definition. They implicitly accused Vodafone of dodging tax by transfer pricing - a view totally unsupported by the facts or by any interest from the IRD. And they suggested a level of profitability that Vodafone's since-published, audited accounts have shown to be wildly inaccurate.

When Vodafone eventually found out what had been pleaded against it in secret it complained to Parliament's speaker, Jonathan Hunt, and to committee chairman David Cunliffe. Its complaints elicited nothing more than an invitation to put the record straight - after the horse had bolted.

"We must stress," Cunliffe wrote, "that this is not an opportunity to reopen the more general policy debate as the Telecommunications Bill is no longer before the committee."

The one concession Vodafone has managed to secure is a clause stating incumbents will have to open their networks only to entrants with a viable business plan and coverage of at least 10% of the population.

Given the economies afforded by the ability to "co-locate" equipment on Vodafone's cell towers and the fact Auckland alone has 30% of the population, that shouldn't be a big ask.

Whether Econet and the trust can come up with a "viable" plan and serious financial backing is another question, one the courts will probably be called on to determine before long.

At the core of this fiasco lies the government's handling of its no doubt laudable intention to give Maori a stake in telecommunications.

The rationale for reserving 3G spectrum for Maori was to give them a fair crack at a Crown resource that was being sold off.

But the plan was flawed from the beginning. Hautaki's 3G spectrum can't be used for 2G services. It will be useless until at least 2005 and maybe forever.

Enter Econet, which secured 2G spectrum in the same auctions. Its submissions to the select committee admitted it would have to be crazy to try to compete with Vodafone under the current regime.

But by buddying up with Hautaki it managed to secure a legislative change that will give it a shot at competing with Vodafone in 2G GSM services - by piggybacking on Vodafone's network.

If it is successful it will transfer profits from Vodafone shareholders' pockets to those of its owners - of which Hautaki is one but with only a 30% stake.

Is this really what the government intended?

To accommodate its confused aspirations for Maori it has had to tilt the entire regulatory playing field. On its head be the unintended consequences.

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